Wonkbook: Waiting for Bernanke

September 11, 2012

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook dashboard

RCP Obama vs. Romney: Obama +2.9%; 7-day change: Obama +1.8%.

RCP Obama approval: 49.2%; 7-day change: +1.5%.

Intrade percent chance of Obama win: 60.3%; 7-day change: +5.1%.

Top story: Is the Fed about to act?

Division among the Federal Reserve's monetary policymaking committee is a stealth threat to the recovery. "As the Federal Reserve prepares to take what is expected to be new action to stimulate the economy this week, divisions at the central bank may be undermining its efforts to speed up economic growth and lower unemployment...[D]isagreements within the Fed risk muddying the central bank’s message, a problem that many economists say could make its efforts ineffectual and possibly counterproductive...Fed officials are cognizant that their policies may not have sent as clear a signal as they hoped." Zachary A. Goldfarb in The Washington Post.

UBS is telling its investors QE3 is coming. "More and more market prognosticators are calling for the Fed to unveil a third round of quantitative easing this week UBS is the latest to join the fray, predicting the Fed will announce something big on Thursday following its policy meeting. The QE3 parameters will likely entail a six-month program of at least $500 billion, primarily focused on buying Treasurys, UBS predicts, while also anticipating the Fed will extend its ultra-low rate guidance into 2015. UBS joins a growing chorus of investors who are anticipating less talk and more action from the Fed after its two-day meeting this week, which ends on Thursday with a statement and press conference from Fed Chairman Ben Bernanke." Steven Russolillo in The Wall Street Journal.

@Goldfarb: Arguments for QE3: Labor market very weak, housing market could use push, insurance against fiscal cliff...Arguments against QE3: Mortgage rates already low, stock prices high, commodity inflation

Last week's sour job number may have been the tipping point. "Many are viewing last Friday's jobs report as the tipping point...The report was disappointing enough that many economists now believe Ben Bernanke and the Fed will be compelled to finally implement a third round of quantitative easing." Chris Preston in NASDAQ.

@jimtankersley: Judging by the wall st analyst reports in my inbox, if Fed *doesnt* do QE3 next wk, Bernanke's comms strategy will have failed.

Though they may help the economy, low interest rates are shortchanging savers. "A consumer complaint is ricocheting around the world: low interest rates are eating away at savings...The fact that interest yields are so low in so many parts of the world is no coincidence. Rates are determined not only by markets, but also by government policy. And right now many governments say they have good reason to keep their own borrowing costs as low as they possibly can...Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves. Over time, interest rates below the inflation rate allow governments to refinance, erode or liquidate their debt, making it easier to live within their budgets without having to resort to more unpalatable spending cuts or tax increases." Catherine Rampell in The New York Times.

Credit demand is still weak, as consumers choose to keep the credit cards in their wallets. "Americans cut back on their credit card use in July for a second consecutive month, suggesting that many remain cautious in the face of high unemployment and slow growth. Total consumer borrowing dipped $3.3 billion in July from June, to a seasonally adjusted $2.705 trillion, the Federal Reserve reported Monday...Consumers have been using credit cards much less since the 2008 financial crisis." The Associated Press.

@pdacosta: Global central bankers' band 'Fiat Currency,' (Bernanke, Draghi & King) has a new hit single out: "Where there's a will." It's the jam.

BAUM: Why Bernanke will ease. "Federal Reserve Chairman Ben Bernanke will be damned if he does and damned if he doesn't on Wednesday...Bernanke is a man of his word. Agree or disagree with his policies, he is a person of character. Therefore, we should expect the Fed to announce additional stimulus at the conclusion of this week's meeting. Bernanke has been laying the groundwork for months...So what will the Fed do? Perhaps it will announce something akin to the European Central Bank's open-ended bond purchases without the offsetting sales. There are risks to doing more...The risks of doing nothing may be even greater. Inflation is a future risk; current unemployment is a 'grave concern.' With words like that, Bernanke's choice seems pretty clear." Caroline Baum in Bloomberg.

Top op-eds

CONVEY: Why Romney will reform, not repeal, Obamacare. "What does Mr. Romney's Massachusetts experience suggest about how he'd run things from the Oval Office? It's a safe bet that defenders of government spending from both parties will have to bolster their data with well-founded economic arguments if they want him to stay his hand...[I]t's more likely that Mr. Romney will try to reform ObamaCare than make good on his vow to repeal it. For one thing, he won't have the votes for repeal unless the Republicans win the Senate. But he also seems not to have entirely given up the belief that getting people to buy health insurance is a fundamental financial necessity -- that's one reason he will not disavow the near-universal coverage he helped bring to Massachusetts." Eric Convey in The Wall Street Journal.

PONNURU: A powerless President Romney? "This election is likely to result either in a continued face-off between President Barack Obama and congressional Republicans or in a unified Republican government led by Mitt Romney...Even in the second scenario, though, getting legislation through Congress is going to be very hard...A Romney presidency, in other words, would have to start with his breaking a promise to conservatives. He would have to get Republican congressmen to break their own promises, too, because many of them made the same pledge he did...My bet is that Romney’s tax cut would fall victim to a growing Republican realization: Even if they triumph this November, they will find it very hard to legislate." Ramesh Ponnuru in Bloomberg.

@baseballcrank: I'm the last person to confidently predict a Romney victory. But man, do I have some stuff stored up to mock if Obama loses.

SOLTAS: Policies for the Obama second term. "What does President Barack Obama have in mind for a second term? Critics say his lackluster address at last week's Democratic National Convention failed to set out a vision. That's not entirely true. Asking voters to "rally around a set of goals" for the country, Obama set several economic objectives -- increasing exports, clean energy production and manufacturing employment -- and others that were political, such as reducing the deficit and bolstering national security and education. Let's look more closely at these presidential promises...All in all, Obama's pitch for a second term is modest -- no moon bases, a la former Speaker of the House Newt Gingrich. His goals in exports, manufacturing, energy, education and the deficit are not exactly pie-in-the-sky, as many seem on track already, and he does have specific policy options to back up the vague promises of his convention address." Evan Soltas in Bloomberg.

BROOKS: Why men fail. "You’re probably aware of the basic trends. The financial rewards to education have increased over the past few decades, but men failed to get the memo. In elementary and high school, male academic performance is lagging...Over the years, many of us have embraced a certain theory to explain men’s economic decline. It is that the information-age economy rewards traits that, for neurological and cultural reasons, women are more likely to possess...But, in her fascinating new book, “The End of Men,” Hanna Rosin posits a different theory. It has to do with adaptability. Women, Rosin argues, are like immigrants who have moved to a new country. They see a new social context, and they flexibly adapt to new circumstances. Men are like immigrants who have physically moved to a new country but who have kept their minds in the old one." David Brooks in The New York Times.

STARR: America needs entrepreneurial visas. "The United States—unlike Chile, Britain, Singapore, New Zealand and other countries—does not have a visa category for immigrants who aspire to found companies and create jobs...If Congress does move on the matter, lawmakers would be wise to stipulate that visa-granting decisions take into account advice from the existing start-up ecosystem --venture-capitalists and business incubators -- rather than giving the task solely to immigration adjudicators, who would be less well-equipped to identify deserving recipients." Alexandra Starr in The Wall Street Journal.

STEVENSON AND WOLFERS: You're better off than you were four years ago. Look at the stock market. "Do you remember the news four years ago? Banks collapsed, markets cratered, companies struggled to make payroll and millions of people lost their jobs. Your retirement savings were decimated, the value of your house plunged, credit was unobtainable. Politicians dithered and economists argued. Only confusion prospered. Against this background, it’s surprising to hear Republicans returning to Ronald Reagan’s classic debate question: 'Are you better off than you were four years ago?' To anyone whose memory extends a full electoral cycle, the answer is clearly yes...The stock market, by contrast, is obsessively focused on the future...Their collective judgment, while far from perfect, tells a compelling story about how America’s prospects have changed over the past four years." Betsey Stevenson and Justin Wolfers in Bloomberg.

Top long reads

Salman Rushdie explains how the fatwa changed his life: "At the CBS offices, he was the big story of the day. People in the newsroom and on various monitors were already using the word that would soon be hung around his neck like a millstone. 'Fatwa.'...Somebody gave him a printout of the text as he was escorted to the studio for his interview. His old self wanted to argue with the word “sentenced.” This was not a sentence handed down by any court that he recognized, or that had any jurisdiction over him. But he also knew that his old self’s habits were of no use anymore. He was a new self now. He was the person in the eye of the storm, no longer the Salman his friends knew but the Rushdie who was the author of “Satanic Verses,” a title that had been subtly distorted by the omission of the initial 'The.' 'The Satanic Verses' was a novel. 'Satanic Verses' were verses that were satanic, and he was their satanic author. How easy it was to erase a man’s past and to construct a new version of him, an overwhelming version, against which it seemed impossible to fight. He looked at the journalists looking at him and he wondered if this was how people looked at men being taken to the gallows or the electric chair."

Mark Jacobson traces the decline of public housing: "NYCHA, the New York City Housing Authority, a.k.a. the projects...Nychaland’s most compelling attribute is the fact that it exists at all. Across the U.S., public housing, condemned as a tax-draining vector of institutionalized mayhem and poverty, whipping-boy symbol of supposedly foolhardy urban policy, has largely disappeared. Chicago knocked down Cabrini-Green, St. Louis imploded Pruitt-Igoe, New Orleans flattened Lafitte after Katrina. Only in New York does public housing remain on a large scale, remnants of the days when the developments were considered a bulwark of social liberalism, a way to move up."

Graphical interlude: The drip-drip-drip accumulation of tax breaks since 1974.

Got tips, additions, or comments? E-mail me.

Still to come: amazing calculations on the iPhone 5's economic importance; why partial repeal of Obamacare will be a challenge; Republicans put forward bill to avoid gov't shutdown; the potential of wind power; and the bizarre stock photography of the Euromess.

Economy

Save our economy, oh iPhone 5. "The conventional wisdom holds that we shouldn’t expect too many tech miracles from the iPhone 5. The latest iteration of Apple’s popular smartphone will mainly just be an incremental upgrade over previous versions. Ho-hum. But what about an economic miracle? In a new research note, JP Morgan’s Michael Feroli estimates that iPhone 5 sales could boost U.S. economic growth in the fourth quarter by up to 0.5 percentage points. That could mean the difference between a disappointing economic expansion and a half-decent one." Brad Plumer in The Washington Post.

Middle-income workers are getting crushed in this economy. "Middle-income workers have endured a “lost decade” of stagnant wages and are teetering on the brink of another, the consequence of both the recent recession and a long series of policy choices that have eroded their leverage in the job market, according to a report...[T]he report argues that a large part of the problem resides closer to home: A minimum wage that has not kept pace with inflation, a persistently slack labor market that has undermined worker leverage and the continued demise of unions...The options include a financial stimulus to stoke job creation, more restrictive trade deals, policy to make it easier to organize labor unions, a higher minimum wage and more aggressive Federal Reserve policy aimed at pushing down interest rates and lowering unemployment." Michael A. Fletcher in The Washington Post.

Adding up Romney's tax plan, round two. "After running all the numbers under conditions that were very, very favorable to Mitt Romney’s tax plan, the nonpartisan Tax Policy Center concluded that there was simply no mathematical way for Romney to fulfill all his promises simultaneously. But more recently, Harvard economist Martin Feldstein has said they’re wrong...So, how did he get to such a different conclusion? The short answer is he made some very different assumptions than did the Tax Policy Center. The long answer is that his conclusion may not be as different as you think...It might be mathematically possible to make Romney’s plan work by sharply increasing taxes on people making between $100,000 and $200,000 so you could cut them on very rich taxpayers. It’s not possible to make the numbers add up if you refuse to raise taxes on people making less than $200,000." Ezra Klein in The Washington Post.

@petersuderman: Romney's tax plan is such a great gimmick. He won't say what the details are. And when you try to fill in the details, nothing adds up.

The dual nature of the AIG exit. "The Treasury Department’s announcement this week that it plans to sell at least $18 billion worth of its remaining shares in insurance giant American International Group has the makings of an unlikely success story...AIG’s dramatic turnaround represents an accomplishment both for the company and for the Obama administration and is a testament to how the nation’s financial markets have stabilized since the depths of the financial crisis in 2008. But not everyone is ready to break open the champagne just yet." Brady Dennis in The Washington Post.

Photography interlude: The bizarre stock photography of the Euromess.

Health Care

Pro-life does not mean anti-Roe. "Mitt Romney’s Obamacare comments on 'Meet the Press' on Sunday have received no shortage of attention. There’s another remark he made, though, that also deserves some consideration: his preference that the Supreme Court overturn Roe v. Wade...That’s Romney’s preference, but its not one necessarily shared among abortion opponents. In the abortion rights movement, there is some hesitancy to endorse Roe’s reversal exactly because it would return this issue to the states. That would allow liberal states to still provide widespread abortion access, much like they did prior to the Supreme Court decision...In a recent working paper, Theodore Joyce, Ruoding Tan and Yuxiu Zhang estimate that if 31 states implemented bans, the abortion rate would drop 14.9 percent. That’s not nothing -- but its still far from eliminating abortion entirely." Sarah Kliff in The Washington Post.

The challenge of partial repeal. "Mitt Romney’s pledge to guarantee access to health insurance for people with longstanding medical problems confused some experts and highlighted the difficulty of repealing the new health care law while keeping some of its popular features...Mr. Romney did not explain a significant feature of his proposal: he would explicitly guarantee insurance for people with existing conditions only if they have maintained coverage without a significant gap. That could exclude millions of Americans with medical problems like cancer, heart disease and asthma." Robert Peal and Abby Goodnough in The New York Times.

Domestic Policy

Congress is on its own this election, presidential campaigns say. "[W]hat the president never talks about is getting more of his party members elected to the House and the Senate. And, for that matter, neither does Mr. Romney...It is the survival of the fittest on the presidential campaign trail these days. With a close election expected and a dog-eat-dog fight for swing states, who has time to spend stumping for other politicians? Certainly not the president or Mr. Romney, despite the stakes in this year’s Congressional elections. Instead, each is focused on his own fate." Helene Cooper and Jeremy W. Peters in The New York Times.

GOP puts forward compromise plan to avoid gov't shutdown. "House Republicans released a copy of the bill that the House is expected to approve later this week to keep the government running through next March. The continuing resolution, H.J.Res. 117, would ensure discretionary spending at a rate of $1.047 trillion, which GOP leaders said is $26.6 billion lower than last year's level. But that's also more than what many Republicans wanted to spend — the House passed seven spending bills earlier in the year, many of which would have put the government on a pace to spending below the $1.047 trillion cap for 2013 that was agreed to last year." Pete Kasperowicz in The Hill.

Demography interlude: How Democrats and Republicans divide by race and religion.

Energy

The incredible potential of wind power. "At the moment, wind power supplies about 4.1 percent of electric power in the United States. Still a bit player. Yet there’s a whole lot of untapped wind left in the world. Wind whipping through the Great Plains. Wind gusting off the shores. Wind circulating high up in the sky. So what would happen if we tried to harvest all of that wind? We’d have enough energy to power the world. At least in theory. A new study published this week in Nature Climate Change finds that there’s enough wind potential both on the Earth’s surface and up in the atmosphere to power human civilization 100 times over...Humans could sustainably extract up to 2,200 terawatts of power from surface and atmospheric winds before bumping into physical limits. That’s 100 times as much power as the world uses today." Brad Plumer in The Washington Post.

Shell freezes Arctic drilling effort. "A day after it began drilling its first well in the Arctic Ocean, Shell has been forced to temporarily abandon the work because of sea ice moving into the area...The company has been repeatedly stymied by equipment problems, regulatory hurdles, persistent sea ice and legal challenges from Alaska Natives and environmental groups. Shell had hoped to complete as many as four wells in the Arctic this summer. It now expects to begin one or two wells and finish next year." John M. Broder in The New York Times.

Wonkbook is produced with help from Michelle Williams.

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Dylan Matthews · September 10, 2012